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Unregulated Bitcoin Futures: Hong Kong Regulator Warns Investors

A new circular centred on bitcoin futures contracts and cryptocurrency-related investment products has published by the Hong Kong’s securities regulator.

The circular published yesterday by the Hong Kong’s Securities and Futures Commission (SFC) quickly reminded dealers of bitcoin futures contracts to adhere to the legal and regulatory requirements. The circular was published on the same day when the Chicago-based CBOE began trading its futures contract after its launch on Sunday.

The Hong Kong regulator wrote that “Bitcoin Futures have been or will soon be launched by certain well-established futures and commodities exchanges in the United States which are regulated by the U.S. Commodity Futures Trading Commission and authorised by the Securities and Futures Commission (“SFC”) to provide automated trading services”.

Notably, the regulator added:

” Hong Kong investors may be able to trade in Bitcoin Futures through an intermediary which is a member of these exchanges”.

The parties or the intermediaries who are providing services related to Bitcoin futures must “have an appropriate license with the SFC… irrespective of whether the party is located in Hong Kong, so long as its business activities target the Hong Kong public.”

The regulator also starts up to make an operation dealing with the bitcoin futures contracts as a ” Type 2″ a regulated activity under SFO (Securities and Futures Ordinance ) laws. The marketing of a bitcoin futures contracts will constitute a “Type 1” (dealing in securities) regulated activity and be managing any cryptocurrency-related investment fund is to be deemed a “Type 9” (asset management) regulated activity.

The regulator also pointed out one thing that about “some unregulated cryptocurrency exchanges” that are already offering crypto-related futures contracts and investment products to the Hong Kong public. At the same time, it will be illegal for some unregulated exchanges to offer these services without a license from the SFC. The regulator has given the advice to the investors of other exchanges operating outside its jurisdiction.

The regulator warned the investors that:

“The SFC reminds investors that trading cryptocurrencies may expose them to risks including insufficient liquidity, high price volatility and potential market manipulation… Investors may be exposed to substantial risks and significant financial losses in trading cryptocurrency futures contracts and other cryptocurrency-related investment products (eg options, swaps and contracts for differences), especially on unregulated exchanges”.

The CME Group is the world’s largest derivatives exchange who offered the bitcoin futures contracts. The circular of the Hong Kong regulator about the cryptocurrency came just before a week for the launch of the CME Group offered bitcoin futures contracts.